Overview

Gramercy Capital Corp. is a self-managed, integrated commercial real estate finance and property investment company. We were formed in April 2004 and commenced operations upon the completion of our initial public offering in August 2004. On April 1, 2008, we completed the acquisition of American Financial Realty Trust (NYSE: AFR), or American Financial, in a transaction with a total value of approximately $3.3 billion, including the assumption of approximately $1.3 billion of American Financial's secured debt. The acquisition transformed our company from a pure specialty finance company into a diversified enterprise with complementary business lines consisting of commercial real estate finance and property investments.

We conduct substantially all of our operations through our operating partnership, GKK Capital LP, or our Operating Partnership. We are the sole general partner of our Operating Partnership. From our inception until April 2009, we were externally managed and advised by GKK Manager LLC, or the Manager, a wholly-owned subsidiary of SL Green Realty Corp. (NYSE: SLG), or SL Green. On April 24, 2009, we completed the internalization of management through the direct acquisition of the Manager from SL Green. As a result of the internalization, beginning in May 2009, management and incentive fees payable by us to the Manager ceased, and we added 77 former employees of the Manager to our own staff. We expensed approximately $5,010 for acquisition costs incurred through June 30, 2009 in connection with our acquisition of the Manager. At June 30, 2009, SL Green Operating Partnership, L.P., or SL Green OP, owned approximately 12.5% of the outstanding shares of our common stock.

Our commercial real estate finance business, which operates under the name Gramercy Finance, focuses on the direct origination and acquisition of whole loans, bridge loans, subordinate interests in whole loans, mezzanine loans, preferred equity, commercial mortgage-backed securities, or CMBS, and other real estate related securities. Our property investment business, which operates under the name Gramercy Realty, focuses on the acquisition and management of commercial properties leased primarily to regulated financial institutions and affiliated users throughout the United States. These institutions are for the most part deposit taking commercial banks, thrifts and credit unions, which we generally refer to as "banks." Our portfolio of wholly-owned and jointly-owned bank branches and office buildings is leased to large banks such as Bank of America, N.A., or Bank of America, Wachovia Bank National Association (now owned by Wells Fargo & Company, or Wells Fargo), or Wachovia Bank, Regions Financial Corporation, or Regions Financial, and Citizens Financial Group, Inc., or Citizen Financial, and to mid-sized and community banks. Neither Gramercy Finance nor Gramercy Realty is a separate legal entity but are divisions of us through which our commercial real estate finance and property investment businesses are conducted.

We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, and generally will not be subject to U.S. federal income taxes to the extent we distribute our income to our stockholders. We have in the past established, and may in the future establish taxable REIT subsidiaries, or TRSs, to effect various taxable transactions. Those TRSs would incur U.S. federal, state and local taxes on the taxable income from their activities. Unless the context requires otherwise, all references to "we," "our" and "us" mean Gramercy Capital Corp.

Since our inception, we have completed debt investment transactions in a variety of markets and secured by a variety of property types. Until the second half of 2007, the market for commercial real estate debt exhibited high relative returns and significant inflows of capital. However, due to growing illiquidity in the credit markets and an overall slowing in macroeconomic conditions, the default levels for commercial real estate have risen. The market for debt instruments had for several years, until the

second half of 2007, evidenced declining yields and more flexible credit standards and loan structures. In particular, "conduit" originators who packaged whole loans for resale to investors drove debt yields lower while maintaining substantial liquidity because of the then-strong demand for the resulting securities. Because of reduced profits in the most liquid sectors of the mortgage finance business then existing, several large institutions began originating large bridge loans for the purpose of generating interest income, rather than the typical focus on trading profits. In response to those developments, we focused on areas where we had comparative advantages rather than competing for product merely on the basis of yield or structure. This had particularly included whole loan origination in markets and transactions where we had an advantage due to (i) knowledge or relationships we have,
(ii) knowledge or relationships of our largest stockholder, SL Green, and
(iii) an ability to better assess and manage risks over time. When considering investment opportunities in secondary market transactions in tranched debt, we often avoided first loss risk in larger transactions due to the then-high valuations of the underlying real estate relative to historic valuation levels. Because of the then-significant increase in the value of institutional quality assets relative to historic norms, we focused on positions in which a property sale or conventional refinancing at loan maturity, based on normalized valuation and lending standards, would provide for a complete return of our investment. We generally matched our assets and liabilities in terms of base interest rate (generally one-month LIBOR) and, to the extent possible, expected duration. We raised debt and equity in several different capital markets to improve the diversity of our funding sources, maintain liquidity, and achieve our match-funding objectives.

However, beginning in the second quarter of 2007, the sub-prime residential lending and single family housing markets in the U.S. began to experience significant default rates, declining real estate values and increasing backlog of housing supply, and other lending markets experienced higher volatility and decreased liquidity resulting from the poor credit performance in the residential lending markets. Concerns in the residential sector of the capital markets quickly spread more broadly into the asset-backed, commercial real estate, corporate and other credit and equity markets. The factors described above have resulted in substantially reduced mortgage loan originations and securitizations, and caused more generalized credit market dislocations and a significant contraction in available credit. As a result, most financial industry participants, including commercial real estate lenders and investors, including us, continue to find it difficult to obtain cost-effective debt capital to finance new investment activity or to refinance maturing debt.

Credit spreads on commercial mortgages (i.e., the interest rate spread over given benchmarks such as LIBOR or U.S. Treasury securities) are significantly influenced by: (a) supply and demand for such mortgage loans; (b) perceived risk of the underlying real estate collateral cash flow; and (c) capital markets execution for the sale or financing of such commercial mortgage assets. The number of potential lenders in the market place and the amount of funds they are willing to devote to commercial mortgage assets will impact credit spreads. As liquidity increases, spreads on equivalent commercial mortgage loans will decrease. Conversely, a lack of liquidity results in credit spreads increasing. During periods of volatility, such as the markets we are currently experiencing, the number of lenders participating in the market may change at an accelerated pace. Further, many lenders depend on the capital markets to finance their portfolio of commercial loans. Lenders are forced to increase the credit spread at which they are willing to lend as liquidity in the capital market decreases. As the market tightens, many warehouse lenders have requested additional collateral or repayments with respect to their loans in order to maintain margins that are acceptable to them.

For existing loans, when credit spreads widen, the fair value of these loans decreases. If a lender were to originate a similar loan today, such loan would carry a greater credit spread than the existing loan. Even though a loan may be performing in accordance with its loan agreement and the underlying collateral has not changed, the fair value of the loan may be negatively impacted by the incremental interest foregone from the widened credit spread. Accordingly, when a lender wishes to sell or finance the loan, the reduced value of the loan may reduce the total proceeds that the lender will receive.

During 2008 and to date in 2009, the global capital markets continued to experience tremendous volatility and a wide-ranging lack of liquidity. The impact of the global credit crisis on our sector has been acute. Transaction volume has declined significantly, credit spreads for all forms of mortgage debt investments have reach all-time highs, issuance levels of CMBS have ground to a halt, and other forms of financing from the debt markets have been dramatically curtailed. Financial institutions still hold significant inventories of unsold loans and CMBS, creating a further overhang on the markets. We believe that the continuing dislocation in the debt capital markets, coupled with a recession in the U.S., has reduced property valuations and has adversely impacted commercial real estate fundamentals. These developments can impact and have impacted the performance of our existing portfolio of financial and real property assets. Furthermore, the volatility in the capital markets has caused stress to all financial institutions and, our business is dependent upon these counterparties for, among other things, financing, rental payments on the majority of our owned properties and interest rate derivatives. We expect the general unavailability of credit to continue at least through 2009 and perhaps beyond.

It is difficult to predict when conditions in our business will improve. We expect that the adverse circumstances and trends in our business and securities will continue through at least the remainder of 2009, and will begin to improve thereafter only as the credit markets and overall economy improve. Continued disruption in the global credit markets or further deterioration in those markets may have a material adverse effect on our ability to repay or refinance our borrowings and our ability to grow and operate our business.

We have responded to these difficult conditions by sharply decreasing investment activity when we observed deteriorating market conditions, increasing our liquidity, extending debt maturities and restructuring certain of our debt facilities. In addition, beginning with the third quarter of 2008, our board of directors elected to not pay the dividend on common stock, which for the second quarter of 2008 was $0.63 per share. Our board of directors also elected not to pay the Series A preferred stock dividend of $0.50781 per share beginning with the fourth quarter of 2008. The preferred stock dividend for the fourth quarter of 2008 and the first and second quarters of 2009 has been accrued for as of June 30, 2009. In January 2009, we exchanged our $150,000 of trust preferred securities for a new $150,000 junior subordinated debenture. As part of such transaction, we agreed that we will not make any distributions on, or repurchases of, our common stock or preferred stock for all of 2009. Our board of directors will revisit our dividend policy in 2010. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of common stock as permitted under U.S. federal income tax laws governing REIT distribution requirements.

In response to these market disruptions, legislators and financial regulators implemented a number of mechanisms designed to add stability to the financial markets, including the provision of direct and indirect assistance to distressed financial institutions, temporary prohibitions on short sales of certain financial institution securities, assistance by the banking authorities in arranging acquisitions of weakened banks and broker-dealers and implementation of programs by the Federal Reserve to provide liquidity to the commercial paper markets and securities market. On October 3, 2008, the Emergency Economic Stabilization Act of 2008, or the EESA was enacted into law. The EESA authorized the U.S. Secretary of Treasury to create a Troubled Asset Relief Program, or TARP, to purchase from financial institutions up to $700 billion of residential or commercial mortgages and any securities, obligations, or other instruments that are based on, or related to, such mortgages, that in each case was originated or

issued on or before March 14, 2008. The ESSA also provides for a program that would allow companies to insure their troubled assets. The U.S. Treasury has announced the establishment of the following programs under TARP: the Capital Purchase Program, the Targeted Investment Program, the Systemically Failing Institutions Program, the Asset Guarantee Program, the Auto Industry Financing Program and the Homeowner Affordability and Stability Plan, which is partially financed by TARP. In addition, the American Recovery and Reinvestment Act of 2009, or ARRA, was signed into law on February 17, 2009. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs. ARRA also imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients.

On November 25, 2008, the U.S. Treasury and the Federal Reserve jointly announced the establishment of the Troubled Asset Loan Facility ("TALF"). Under the TALF, upon satisfaction of certain terms and conditions, the Federal Reserve Bank of New York ("FRBNY") makes non-recourse loans to borrowers collateralized by certain eligible collateral, which initially included certain highly rated asset-backed securities, but not non-agency mortgage backed securities or commercial mortgage-backed securities. On March 23, 2009 the U.S. Treasury and the Federal Reserve announced preliminary plans to expand the TALF to include certain highly rated non-agency residential mortgage-backed securities, as well as highly rated commercial mortgage-backed securities. As of July 2009, commercial mortgage-backed securities can be used as collateral for a TALF loan. However, to date, neither the FRBNY nor the U.S. Treasury has announced how or when the TALF will be expanded to non-agency residential mortgage-backed securities.

On March 23, 2009, the U.S. Treasury, in conjunction with the Federal Deposit Insurance Corporation, or FDIC, and the Federal Reserve, announced the establishment of the Public-Private Investment Program ("PPIP"). The PPIP has two primary components: a Legacy Loans Program and a Legacy Securities Program. The Legacy Loans Program component of the PPIP contemplates the establishment of joint public and private investment funds ("Legacy Loans PPIFs") to purchase troubled loans from insured depository institutions with equity capital from both the U.S. Treasury and private investors and non-recourse debt issued by the Legacy Loans PPIF and guaranteed by the FDIC. It is currently not clear whether and on what terms the Legacy Loans Program will continue.

The U.S. Treasury has selected nine asset managers under the Legacy Securities Program to raise investments for and manage joint public and private investment funds ("Legacy Securities PPIFs") that will purchase certain non-agency residential mortgage-backed securities issued prior to January 1, 2009. Legacy Securities PPIF are eligible for equity and debt financing from the U.S. Treasury.

The overall effects of these and other legislative and regulatory efforts on the financial markets is uncertain, and they may not have the intended stabilization effects. Should these or other legislative or regulatory initiatives fail to stabilize and add liquidity to the financial markets, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Even if legislative or regulatory initiatives or other efforts successfully stabilize and add liquidity to the financial markets, we may need to modify our strategies, businesses or operations, and we may incur increased capital requirements and constraints or additional costs in order to satisfy new regulatory requirements or to compete in a changed business environment. It is uncertain what effects recently enacted or future legislation or regulatory initiatives will have on us. Given the volatile nature of the current market disruption and the uncertainties underlying efforts to mitigate or reverse the disruption, we may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments and trends in new products and services, in the current or future environment. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and prospects.

The recent credit crisis has put many borrowers and financial institutions, including many of our borrowers and tenants, under increasing amounts of financial and capital distress. This has led to an increased incidence of defaults under loans and leases and could lead to increased vacancy rates in office properties servicing these institutions.

The aggregate carrying values, allocated by product type and weighted average coupons of our loans, and other lending investments and CMBS investments as of June 30, 2009 and December 31, 2008, including loans held for sale, were as follows:

                                                                                                    Floating Rate:
                                                      Allocation by          Fixed Rate:          Average Spread over
                           Carrying Value(1)         Investment Type       Average Yield(2)            LIBOR(3)
                          2009          2008         2009       2008       2009        2008        2009         2008
Whole loans,
floating rate          $ 1,024,838   $ 1,222,991        57.6 %    55.3 %         -          -       428 bps     418 bps
Whole loans, fixed
rate                       145,091       189,946         8.1 %     8.6 %      7.01 %     7.17 %           -           -
Subordinate
interests in whole
loans, floating rate        79,239        80,608         4.5 %     3.6 %         -          -       266 bps     564 bps
Subordinate
interests in whole
loans, fixed rate           44,689        63,179         2.5 %     2.9 %      7.14 %     9.22 %           -           -
Mezzanine loans,
floating rate              271,066       396,190        15.2 %    17.9 %         -          -       619 bps     654 bps
Mezzanine loans,
fixed rate                 202,101       248,558        11.4 %    11.2 %      9.27 %    10.21 %           -           -
Preferred equity,
fixed rate                  12,143        12,001         0.7 %     0.5 %      7.20 %    10.22 %           -           -

   Subtotal/Weighted
   average               1,779,167     2,213,473       100.0 %   100.0 %      8.16 %     8.96 %     457 bps     480 bps

CMBS, floating rate         70,911        70,893         7.5 %     8.1 %         -          -       315 bps     945 bps
CMBS, fixed rate           876,752       799,080        92.5 %    91.9 %      6.31 %     6.26 %           -           -

   Subtotal/Weighted
   average                 947,663       869,973       100.0 %   100.0 %      6.31 %     6.26 %     315 bps     945 bps

Total                  $ 2,726,830   $ 3,083,446       100.0 %   100.0 %      6.89 %     7.32 %     450 bps     498 bps

º (2)
º Spreads over an index other than 30-Day-LIBOR have been adjusted to a LIBOR based equivalent. In some cases, LIBOR is floored, giving rise to higher current effective spreads.

º (3)
º Weighted average effective yield and weighted average effective spread calculations include loans classified as non-performing. The schedule includes non-performing loans classified as whole loans-floating rate of approximately $45,593 million with an effective spread of 741 basis points and non-performing loans classified as whole loans-fixed rate of approximately $22,942 million with an effective yield of 7.67%.

As of June 30, 2009, Gramercy Realty owned a portfolio comprised of 668 bank branches, 331 office buildings and six land parcels, of which 72 bank branches and one office building were partially owned through joint ventures. Our wholly-owned properties aggregated approximately 26.0 million rentable square feet and our partially-owned properties aggregated approximately 0.7 million rentable square feet, including 0.4 million rentable square feet in an unconsolidated joint venture. As of June 30, 2009, the occupancy of our wholly-owned properties was 88.0% and the occupancy for our partially-owned properties was 99.9%. Our two largest tenants are Bank of America and Wachovia Bank and, as of June 30, 2009, they represented approximately 42.7% and 15.6%, respectively, of the rental income of our portfolio and occupied approximately 47.1% and 18.1%, respectively, of our total rentable square feet.

Summarized in the table below are our key property portfolio statistics as of June 30, 2009 and December 31, 2008:

                         Number of Properties                 Square Feet                     Occupancy
                         At                At              At             At             At             At
                      June 30,        December 31,      June 30,     December 31,     June 30,     December 31,
Portfolio               2009              2008            2009           2008           2009           2008
Core                         644                644     20,018,305      20,747,772         95.7 %           96.0 %
Value-Add                    205                222      4,561,161       4,721,333         66.6 %           70.1 %

Subtotal                     849                866     24,579,466      25,469,105         90.3 %           91.2 %
Held for Sale                 84                103      1,832,235       1,337,709         59.9 %           42.1 %

Total(1)                     933                969     26,411,701      26,806,814         88.2 %           88.7 %

Due to the nature of the business of our tenant base, which places a high premium on serving its customers from a well established distribution network, we typically enter into long-term leases with our financial institution tenants. As of June 30, 2009, the weighted average remaining term of our leases was 10.0 years and approximately 79.9% of our base revenue was derived from long-term leases with financial institution tenants. With in-house capabilities in acquisitions, asset management, property management and leasing, we are focused on maximizing the value of our portfolio through strategic sales and through effective and efficient property management and leasing operations.

We rely on the credit and equity markets to finance and grow our business. Beginning the second half of 2007 and throughout 2008 and the first two quarters of 2009 severe credit and liquidity issues in the sub-prime residential lending and single family housing sectors negatively impacted the asset-backed and corporate fixed income markets, and the equity securities of financial institutions and real estate companies. As the severity of residential sector issues increased, nearly all securities markets experienced reduced liquidity and greater risk premiums as concerns about the outlook for the U.S. and world economic growth increased. These concerns continue and risk premiums in many capital and credit markets remain at or near all-time highs with liquidity extremely low compared to historical standards or virtually non-existent. As a result, most commercial real estate finance and financial services industry participants, including us, have reduced new investment activity until the capital and credit markets become more stable, the macroeconomic outlook becomes clearer and market liquidity increases. In this environment, we are focused on actively managing portfolio credit, generating and

recycling liquidity from existing assets, leasing vacant space, extending debt maturities and reducing corporate overhead.

Liquidity is a measurement of the ability to meet cash requirements, including ongoing commitments to repay borrowings, fund and maintain loans and other investments, pay dividends and other general business needs. In addition to cash on hand, our primary sources of funds for short-term liquidity requirements, including working capital, distributions, if any, debt service and . . .